Verizon Profit Climbs 12%; Internet Misses
Estimates (Update1)
By Crayton Harrison
July 28 (Bloomberg) --
Verizon Communications Inc., the
second-biggest U.S. phone company, reported a 12
percent increase in second-quarter profit as
customers bought mobile phones that can access the
Internet, boosting wireless revenue.
Net income
climbed to $1.88 billion, or 66 cents a share, the
New York-based company said today in a statement.
Wireless revenue rose 12 percent to $12.1 billion.
Home-phone lines fell and residential high-speed
Internet growth was slower than some analysts
estimated, sending the shares lower.
Chief Executive Officer
Ivan Seidenberg, 61, used advanced handsets
such as LG Electronics Inc.'s Voyager to lure
wireless customers who might otherwise have opted
for Apple Inc.'s iPhone, offered by market leader
AT&T Inc. Subscribers spent 31 percent more on
data services such as downloads and Web surfing,
helping increase monthly bills even as prices fell
for voice calls.
``They'd like to keep the
wireline customer and the wireless customer, but
there's a tradeoff that's happening in this
economy,'' said
Todd Rosenbluth, an equity analyst at Standard
& Poor's in New York. He advises buying the
shares. ``Wireless is the key driver.''
Total
sales rose 3.7 percent to $24.1 billion, less
than the $24.2 billion average estimate of
analysts in a Bloomberg survey. Leaving out merger
costs, profit was 67 cents a share, compared with
the 65-cent average estimate of analysts. Last
year's second-quarter net income was $1.68
billion, or 58 cents a share.
Verizon fell 85 cents, or 2.5
percent, to $33.60 at 4 p.m. in New York Stock
Exchange composite
trading. The shares have lost 23 percent this
year.
Fiber-Optic Unit
The wireless results bolstered
earnings as growth in the company's fiber optic
unit fell short of estimates. Verizon is spending
$23 billion over seven years to extend fiber lines
into homes to boost Internet speeds and carry TV
signals. It plans to have the service available in
18 million homes by the end of 2010, twice last
year's total.
The company added 176,000 TV
customers and 187,000 Internet subscribers to the
fiber-optic network. Those results missed
projections for 208,000 new video lines and
205,505 Internet connections by
William Power, an analyst at Robert W. Baird &
Co. in Dallas.
``You're feeling the cracks in
the economy in these numbers,'' said
Jennifer Fritzsche, an analyst at Wachovia
Securities Inc. in Chicago. ``If that's the only
growth initiative they have in wireline and it
might be eroding, that's a concern.'' She expects
the shares to perform in line with the rest of the
market.
Promotion Ends
A promotion that offered new
fiber customers a free flat- panel television
ended in the quarter, which probably hurt
subscriber additions, said Power, who has a
neutral rating on Verizon shares.
Verizon has added promotions
this quarter that are boosting fiber sales,
President
Denny Strigl said today on a conference call
with analysts.
Internet customers using the
older digital subscriber line technology decreased
by 133,000. The struggling economy may have played
a part in the losses, Rosenbluth said. College
students also typically switch off their Internet
connections in the second quarter when they return
home from school, he said.
Home-phone lines fell 11 percent
to 22.4 million, compared with the 22.5 million
estimate of JP Morgan Securities Inc. analyst
Mike McCormack. Total phone lines, including
business customers, fell 8.5 percent to 38.3
million, meeting Power's projection.
Record Low Churn
Verizon added 1.5 million mobile
customers last quarter, compared with AT&T's 1.3
million. Its wireless customer turnover rate, or
churn, narrowed to a record low of 1.12 percent
from 1.26 percent a year ago, Verizon said. That
compared with Power's 1.2 percent estimate.
``You're seeing real resilience
in this industry. It's been extremely strong,''
Chief Financial Officer
Doreen Toben said in an interview today.
Verizon's board is considering a ``modest''
increase in the 43-cent quarterly
dividend, reflecting confidence in the
company's cash flow, she said. The company last
raised its dividend in September, adding 2.5 cents
a quarter.
Verizon agreed in June to buy
Alltel Corp. for $28.1 billion in cash and
debt, allowing it to vault past Dallas-based AT&T
as the biggest U.S. wireless carrier. Verizon has
said it expects to complete the deal by the end of
this year.
The company transferred its
phone lines in Vermont, Maine and New Hampshire to
FairPoint Communications Inc. last quarter to
focus more on the mobile-phone and television
businesses. Without those lines, last year's
second-quarter
sales would have been $23 billion, Verizon
said.
To contact the reporter on this
story:
Crayton Harrison in Dallas at
tharrison5@bloomberg.net.
Last Updated: July 28, 2008
16:10 EDT